Some reports suggest that the buyers acted on behalf of the Modis, the Indian promoter of Spice. The deal is being seen as a part of the Modis' effort to consolidate their operations by forming a consortium that will buy out the stakes of other partners who are interested in selling.
The equity buyout will reportedly raise the stake of the Modis to 36 per cent from 22 per cent. The company's press release states that the Modis' Spice Communications is looking to raise its stake in the mobile service venture to 51 per cent eventually, with 49 per cent owned by a strategic investor.
The value of the deal has not been made public.However, according to some reports, foreign investment banks have funded the equity buyout, besides undertaking restructuring of $120 million of debt. The buyout also includes settling of outstanding vendor credits to Motorola and Siemens at $13 million for past purchases of telecom equipment.
The settlement had, in fact, become a major point of conflict between Spice and Distacom a while ago. Distacom had reportedly accused Spice and Siemens of attempting to withdraw $13 million from Spice's bank accounts without the approval of the company board. It had filed a petition in the Delhi High Court, seeking that the Modi Group be restrained from releasing assets belonging to Spice in a manner that was contrary to Distacom's rights and interests.
Besides the change in its capital structure, the deal has also led to a management makeover in Spice. Spice Telecom was originally formed as a 51:49 joint venture between Spicecorp (India), the flagship company of the B.K. Modi-promoted MCorp Global Group, and Distacom.Spice Telecom is a regional mobile operator which offers services in the Karnataka and Punjab circles. It has a total subscriber base of 1.5 million in these two circles and is positioned second only to Bharti in the Punjab circle and fifth in the Karnataka circle, after Bharti, Hutchison, BSNL and Reliance.
The company is looking at investing $200 million over the next two years for a complete overhaul by expanding its infrastructure and introducing new services. Of this amount, it will spend Rs 1 billion in its existing circles to fund its expansion plans.Says B.K. Modi, "We will further strengthen the existing network in Karnataka by adding over 300 towers in the next three to six months. We aim to be the second largest player in due course here." Besides, it is looking at providing fixed line services in Punjab.
Spice has devised aggressive marketing strategies and is planning to introduce innovative services and technologies such as GPRS. "The Spice brand will also be relaunched to focus it as an information, communication and entertainment brand," says Modi. The company has recently unveiled a new logo and announced the launch of a new scheme for its prepaid subscribers.
It is also looking at shedding its regional player image. The company believes that the strong cartel of national and international long distance operators is not letting regional players grow. "We want to disprove the myth that regional players like us cannot survive in the telecom market," says Modi. Towards this end, it has applied for licences in six new circles, including Himachal Pradesh, Haryana, Jammu & Kashmir, Rajasthan, and Uttar Pradesh (east and west).
These investments are planned to be funded through a revolving credit fund of $45 million from MCorp Global. For the current year, the company is looking at an annual turnover of Rs 5.63 billion.
